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How the Mighty Fall CD

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Let me preface this review by saying that I am a fan of Collins' earlier work. Built to Last was a great book, and Good to Great was very good. How the Mighty Fall, however, is neither. The issue of corporate failure is critical, particularly in the current downturn. Unfortunately, the core of Collins' analysis in this book is flawed.

How the Mighty Fall addresses two related questions: Why do good companies fail? and how does management respond once a company gets into trouble? Collins introduces a five stage model to answer these questions, where steps one and two address the roots of corporate failure and steps three through five managements' response.

Collins' analysis of management response to decline--denial of risk, grasping for salvation, and capitulation to irrelevance or death--accurately describe how leaders respond to deterioration in their business. This analysis here is solid, the writing clear, and the tempo brisk. Collins does a particularly good job of describing dysfunctional leadership behaviors of companies is in decline.

Collins' analysis of why companies get into trouble in the first place is much less compelling. Companies fail, according to Collins, when success breeds managerial hubris, which leads to overreach and ultimately failure. Like many of Collins' findings, this makes intuitive sense. Unfortunately in this case, his core argument runs counter to research on hundreds of companies, conducted over decades by dozens of scholars. There are two major flaws in Collins argument.

First, he claims that companies get into trouble because they overreach and expand beyond their core. This is consistent with data showing that diversified companies trade at a discount to focused rivals. Recent research published in the Journal of Financial Economics and the Journal of Finance has established that the companies often diversify to escape decline in their core business. Overreach is a symptom--not a cause--of decline and thus cannot explain its roots.

Second, Collins ignores a rich body of research that finds decline sets in not because companies stray from their core, but because they stick too close to it. Clay Christensen's research on disruptive technology, for example, demonstrates that companies stumble when they stay too close to their established customers and fail to serve emerging segments. The competency trap literature finds that companies get locked in by what they do well and struggle to adapt when circumstances change. Hubris and overreach, of course, play a role in corporate decline, but a well-established body of research suggests that they are rarely the root causes.

How did Collins, who does many things right in his research, get his core finding so wrong in this case? As always he tackles a big and important question, and his pairing of comparable companies is a sensible research design. His failure to read or acknowledge a rich body of previous research that bears directly on his research question, in this case, has led him to rather facile observations. In research, as in business, a lack of humility in recognizing the contributions of others can lead to overreach.

One thing that strikes me about Jim Collins' work is that he is passionate about what he does. He and his researchers dig down deep into companies and examine them from different perspectives over a period of time. As he says, "We do not decide which companies we 'want' to study... we lay out the criteria for the study-set selection before we see the data and systematically eliminate companies from consideration based on whether they meet the criteria." This has given him great insight into what success is, not just for corporations, but for any institution.

What comes through in his recent book, along with passionate study, is honesty. Collins previously chose Fannie Mae as a "Good to Great" institution. Recently, they have demonstrated anything but greatness in facing economic and marketplace changes. There are other companies he chose, like Circuit City, that have gone the same path. Collins discusses why these enterprises were chosen in his previous book and why they fell on hard times after once being great. Because a great company stumbles into mediocrity does not mean the criteria is flawed or the framework wrong. Rather, as the study shows, somewhere along the way these companies strayed away from what once made them great. "How the Mighty Fall" uses the same criteria from "Good to Great," only in reverse, to show how and why once great enterprises have fallen. Collins does this with the same attention to detail and passion as in his previous works.

There are a couple of parts that I found most interesting from the book. First is the chapter entitled "The Undisciplined Pursuit of More." The examples of Ames and Rubbermaid, along with the other ideas presented in this chapter, really hit home in light of recent developments in our financial markets. The second part is appendix 6 where he gives brief case studies on IBM, Nucor and Nordstrom using the "Good to Great" framework to demonstrate how they went from struggling companies back to greatness. I recommend this book to anyone who is interested in an honest assessment of either business success or success principles in general.

I am a huge Jim Collins fan. I really believe that Good to Great helped my company in many different ways. This book had some great information in it, but it could have been done in an article in a magazine. There is just not enough substance to fill an entire book. What is there is really important, but not much of it. In fact it seems like half of the book is appendix. I guess after Good to Great I expected more.

"Come, let us build ourselves a city, and a tower whose top is in the heavens; let us make a name for ourselves, lest we be scattered abroad over the face of the whole earth." -- Genesis 11:4

How the Mighty Fall takes a methodology similar to Built to Last and Good to Great and searches for differences among paired companies (Loser--Winner; A&P--Kroger; Addressograph--Pitney Bowes; Ames--Wal-Mart; Bank of America--Wells Fargo; Circuit City--Best Buy; Hewlett Packard--IBM; Merck--Johnson & Johnson; Motorola--Texas Instruments; Rubbermaid--None qualified; Scott Paper--Kimberly-Clark; and Zenith--Motorola) As you can see, it all makes for strange bedfellows (Motorola is on both sides of the divide and Rubbermaid doesn't have a winning comparison partner). As before, the analysis relies on public information from that period (such as annual reports, business journalism articles, and analyst reports).

From these data, Jim Collins discerns the following taxonomy of stages:

1. Hubris (excess pride) due to prior success
2. Undisciplined pursuit of more
3. Denial of risk and peril
4. Grasping for salvation
5. Capitulation to irrelevance or death

Reaching any one of these stages doesn't mean that stage 5 is inevitable in Collins' view.

The result is more like a monograph than a full business book with limited examples and observations. Many readers will find themselves hungering for more.

I was grateful to Mr. Collins for the excellent way that he defined and described his cases. As a result, I was able to look into what he was measuring to see what else might be there.

I had the good fortune to work with most of these companies as a consultant either just before or during the measurement period. As a result, I was able to think about what people inside the company had told me at the time about what they were doing and why they were doing it as well as what I observed about how they went about doing their work.

From those additional perspectives, I thought there were some other lessons:

1. Capable continual business model innovators (Kroger, Pitney Bowes, Wal-Mart, Wells Fargo, Best Buy, IBM, TI, and J & J) outperform those who mostly try to make old business models more efficient and effective.

2. Companies are more likely to try to do too much and swerve off in weird directions because the CEO feels insecure (Addressograph, Ames, Bank of America, Merck, Motorola, Scott, and Zenith) compared to a predecessor and the predecessor's track record (or a competitor CEO and that CEO's track record) rather than because of excess pride.

3. Denial of risk and peril arrives long before the company's performance peaks (Addressograph, Ames, Bank of America, Circuit City, Motorola, Scott, and Zenith). It just shows up as a problem later after a change in the environment causes the company to be exposed to worse results because of risk than before.

4. Ignorance about how to do big acquisitions successfully is rampant in large organizations (Ames, Hewlett Packard, Merck, and Motorola). Do a difficult large acquisition without understanding how to succeed, and you will probably fall flat on your face. Your stock will fall flatter than a pancake.

5. Pursuit of seemingly higher-growth markets is an irresistible lure for the portfolio-strategy-focused CEO (these names shall remain unidentified, but they know who they are) regardless of the real opportunity (think of the AOL-Time Warner merger).

This subject, I think, would be much better studied as a methodology by long-term tracking studies that include annual interviews and visits with a large number of competitors, customers, suppliers, and employees among the comparison companies. Perhaps someone from academia will move beyond the desire to write a quick case and do this kind of fundamental research to help answer the question: "How can we know when we are headed for a fall?"

Jim Collins has already written some of the seminal works on business strategy and management with Built to Last and Good to Great. While those books are great, How the Mighty Fall a short eclipses them in my opinion, its stated as a focused side project and it stays just that focused at about the right length and tone.

My recommendation is simple: get this book, read it, reflect on it and see where you stand. This is an example of what a five-star business book should be.

Why? Well the answer is simple, its well researched, clearly written, devoid of significant pontification and provides advice that everyone can use. While these factors were present in Collins other works, they were not so to this degree.

Here is what I mean.

Good to Great provides the characteristics of great companies in terms of some simple to remember characteristics, for example, level 5 leadership. These characteristics in good to great described what executives aspired to become. That aspiration is born out of executive desire to be successful. That led to many people seeing themselves as having these characteristics when clearly they did not. When Good to Great came out I cannot tell you how many executives I met with you said that they were or aspired to be level 5 leaders when the best they could manage was 1 and 3/4s. We all want to see ourselves as successful and that undermined the applicability of the Good to Great ideas.

Not this book. How they Mighty Fall clearly describe five stages of enterprise failure and distress. Because no one wants to be them, the guidance these stages provide create an environment for real discussion about the company rather than self-reflective revisionism on how we are great. That clarity, which supports the Good to Great principle of "Confront the Brutal Facts," is what sets this book apart. It should a design principle for Collins current project on managing in turbulence.

The five stages all describe the antithesis of the Good to Great concepts, which is ok, but the book is more than just inverting good to great - it looks beyond that.

Stage 1: Hubris born of success - describing the cultural tipping point when hard work and focus to earn the business turns into a sense of entitlement to future success. This is the death of Level 5 Leadership.

Stage 2: Undisciplined pursuit of more - building from stage one is people chasing goals that take them away from their core, their competitive advantage all in the name of growth, or the grand strategy. This leads to thinking what before you think about who and abandoning the hedgehog concept in favor the rabbit's pursuit of quick gains.

Stage 3: Denial of risk and peril - now that you are chasing things that are not part of your core, you fail to see the problems or blame the problems on the outside world. In this stage you are blind to the brutal facts.

Stage 4: Grasping for salvation - often in the form of the silver bullet, visionary leader all of which keep your attention away from the core (Flywheel) and lead you into further decline. I lose a culture of discipline, abandong the flywheel and chase things outside the core.

Stage 5: Capitulation to irrelevance or death - the final demise when people throw in the towel and the cause is lost. This is the terminus of the lifecycle and the one place you cannot recover from.

Rather than re-write the book here are what I see as strengths and challenges

Strengths

Well researched and more importantly Collins makes key elements of the research process, scoring models and approaches visible to the reader. This is a piece of work that says see what I did so you can have confidence in the results - a true example of a well-done book.

Case studies that go beyond those done in Good to Great and Built to Last. This broadens the range of examples, a good thing. But there are still a number of repeats here.

Clear writing, the book is focused neat and trim. Sure its short, the book is physically small and the core text is only 123 pages, but each page is loaded with content. I read the book on two 90-minute airplane flights and will come back to it time after time.

Clearly structured and summarized information, which makes the book very usable. This is seen in the way Collins uses tables - sparingly but when needed and other summarization techniques.

Challenges

Descriptive without being prescriptive, which is a strength, but people looking for recipes to avoid failure - ala silver bullets - will not find them and for good reason - chasing them is a characteristic of stage 4. But some people will see this as a weakness. People who reflect on the book's principles will come up with more than enough things to take action.

Repeats some of the prior books concepts and precepts. This makes it seem a little repetitive in places and can lead the reader to think that this book is just the photographic/cognitive negative of Good to Great.

Takes the easy road in a couple of places use well-worn examples - IBM, the Challenger, among others where deeper or new analysis would be helpful.

Overall the best book so far for 2009 - it is well worth the read, the time and spreading the news.

Not too bad a book. But... has a sort of hurried feel to it. Too thin, and the style is too reminiscent of "Good To Great", but without the details of the former. Almost like a movie trailer trying to pass as the movie itself. 120 pages of content, and 100+ pages of appendices and notes and index. Come on... this is just not done, Mr Collins, and certainly not expected from someone like you.

There is a great opportunity for making this book truly great when Collins quotes Tolstoy's novel Anna Karenina.
__"All happy families are alike; each unhappy family is unhappy in its own way." ... I've concluded that there are more ways to fall than to become great. [page 19]

But that's pretty much the start and end of any attempt to move the book from mediocrity to good, let alone great.

According to Collins, companies that fail tend to follow five stages of decline. Companies can fall one or more levels and still recover, but many keep sliding from one level to another, their descent punctuated only by frantic efforts at reorganization, rapid-fire change in leadership, random changes in the business model, brutal layoffs, and more.

The five stages are:
Stage 1 - Hubris Born of Success.
Stage 2 - Undisciplined Pursuit of More.
Stage 3 - Denial of Risk and Peril.
Stage 4 - Grasping for Salvation.
Stage 5 - Capitulation to Irrelevance or Death.

Companies can seem to be in rise even as they go through stages 1, 2, and 3. Decline visible to world, seems to occur only at stage 4, at which point most companies will inevitably slide down further and further. The book's first half is all about these five stages.That is all of 124 pages or so. Yes. 124 pages of large type on paper size that is smaller than most paperbacks. The next 90 pages are notes and appendices for each section. 29 pages of notes, the rest are appendices. So, if you skip the references and notes and all, as most people do, you could be done reading the book before you are halfway on a flight from Seattle to San Jose.

__"Packard's Law states that no company can consistently grow revenues faster than its ability to get enough of the right people to implement that growth and still become a great company. ... (We named this law after David Packard, cofounder of HP, inspired by his insight that a great company is more likely to die of indigestion from too much opportunity than stavation from too little.) "[page 55]

This book needed to have covered new ground, or in a different way, or should have insights that would have been illuminating. It is none. Some of the material, especially on people and bureaucracies, is indeed timeless, and useful, but he has covered that to some extent in Good to Great: Why Some Companies Make the Leap... and Others Don't. If you have not read that book, then this book is useful enough. When comparing or contrasting two firms that went to a particular stage, and one recovered and the other did not, you don't really get any insight. The example of TI and Motorola is one. Or that of IBM and HP. HP seemed to have gone down the tube under the leadership of Carly Fiorina, but has been on the mend with its new CEO, Mark Hurd. Was the acquisition of Compaq all that big a failure as is made out to be? What was it that HP did to come back from the brink? TI does not seem to be doing too well these days. The leadership is the same. What changed?

Collins does seem to recognize the impreciseness of such studies though.
__"If we could conduct double-blind, prospective, randomized, placebo-controlled trials, we would be able to create a predictive model of corporate performance. But such experiments simply do not exist in the real world of management, and therefore it's impossible to claim cause and effect with 100-percent certainty." [page 17]

Collins has written a lot about the importance of people in organizations. And this book is no different. People can and do make or break companies.
__"You break Packard's Law and begin to fill key seats with the wrong people; to compensate for the wrong people's inadequacies, you institute bureaucratic procedures; this, in turn, drives away the right people (because they chafe under the bureaucracy or cannot tolerate working with less competent people or both); this then invites more bureaucracy to compensate for having more of the wrong people, which then drives away more of the right people; and a culture of bureaucratic mediocrity gradually replaces a culture of disciplined excellence. When bureaucratic rules erode an ethic of freedom and responsibility within a framework of core values and demanding standards, you've become infected with the disease of mediocrity." [page 56]

Perhaps the answer to the question as to why this book has such a hurried feel, and why it feels so 'lightweight', even for a pulp-management title, lies on page 118, where Collins writes:

"While working on How the Might Fall, my colleague Morten Hansen and I have been simultaneously working on a six-year research project to study companies that grew from vulnerability to greatness..." [page 118]

This is the third in the series of books from Dr. Jim Collins: Built To Last, Good To Great, and now How The Mighty Fall. This is a book that Dr. Collins wished he didn't have to write, as he uncovers the markers that contributed to the failure of once-great companies.

If you are a frequent reader of my blog (craigtowens.com), you're probably wondering why I'm reading/reviewing a business book. The answer is simple: the principles Jim Collins uncovers in his books are rock-solid principles of success and failure, regardless of the organization in which they are practiced or ignored. In all three of his books, I have mined so many great truths to apply to my personal life, as well as the organizations I lead.

In How The Mighty Fall we learn about the five stages of decline for once-great organizations. Working backward from his evidence, Dr. Collins then gives us "markers" to look for in our own organizations that would tip us off to the stages of decline.

Why study this? Because I want to lead a great church! This quote from the book especially resonates with me -- "The point of struggle is not just to survive, but to build an enterprise that makes such a distinctive impact on the world it touches, and does so with such superior performance, that it would leave a gaping hole - a hole that could not be easily filled by any other institution - if it ceased to exist."

If you are involved in the leadership of any organization (whether for-profit or non-profit), I would encourage you to devour all three of Jim Collins' books.

Awesome book if you are taking higher business classes. While going through case studies you can actually see the pattern emerging.

There are many books and articles that focus on the success of one corporation verses the others that fail. There are those experts who offer direction and guidance to new business leaders on how to be the greatest in their industry. More often than not, the question facing all CEO's and other c-suite executives is, "How can we be the best at what we do? And how do we know what we do best?" Best selling author, Jim Collins addressed these questions, among others, in his books Good to Great and Built to Last. Though in his newest book, How the Mighty Fall: and Why Some Companies Never Give In, Collins evaluates eleven companies to determine what brought some organizations to failure while others, given similar circumstances, were able to succeed.
Collins addresses the question of why companies in great positions fail after studying the contrast between success and failure. After evaluating various companies that suffered through difficult times and went from great to failing, Collins learned that there is a process of decline that others should avoid. Through his research, he discovered Five Stages of decline that offer insight into how a company can avoid, or dig itself out of, a challenging situation. These five stages are:
1) Hubris Born of Success
2) Undisciplined Pursuit of More
3) Denial of Risk and Peril
4) Grasping for Salvation
5) Capitulation to Irrelevance or Death
Collins has established these five Stages on the analysis of only eleven companies which some critics have found to be too little to compile such a finalized format for failure. It is easy to reflect on the history of failed corporations and make assumptions based on certain behaviors. Though regardless of the number of companies studied, the economy is in a state of turmoil and ways of doing business should focus more on how to avoid this crisis in the future. Much of this turmoil, as Collins points out, is due to the arrogance in the financial sector. Perhaps the recognition of these Stages could have assisted in the rebuilding of the organizations before entering Stage Five. Society watched companies such as Lehman Brothers thrive and quickly fall. Should we be so naïve to think that this fall did not start with the hubris that comes with power? Collins addresses very specific characteristics that come with being a success, the challenge lies within being humble and true to the core culture or "hedgehog" as he addressed in Good to Great. Business leaders from the top to bottom should be weary of the steps that are taken to avoid facing such blunder in the end. Awareness and knowledge is the key to business leaders thriving as a leader and as a corporation.

In How the Mighty Fall, Jim Collins compares similar companies during similar time periods facing similar adversity. The companies that succeed are humble, diligent, methodical and assured. The companies that fail are arrogant, growth-obsessed, panicky and unfocused. (Taken from [...])

You could get the impression from Collins' writing that he is a moralist. He cites that the problems with failing companies stem from a lack of humility, self-discipline and eventually, a savior. Yet, Collins' deity in this book is not the Divine, rather it is data. He doesn't isogete the current economic and political situation by starting with conclusions, then backing them up with data. He starts with a question: "Is America renewing its greatness, or is America dangerously on the cusp of falling from great to good?" The data, then, speaks for itself.

The casual assumption would be that in tough economic times every company is suffering. And, to some degree they are. The reality is that while some companies utterly fail in bad times, others move forward with focus and resolve. Similar companies in similar industries in similar tough times should receive similar results. But, that is not the case.

Collins recognizes five stages of decline from his research: (1) Hubris born of success, (2) Undisciplined Pursuit of More, (3) Denial of Risk and Peril, (4) Grasping for Salvation, and (5) Capitulation to Irrelevance or Death. Most professionals as well as consumers knew that Zenith had peaked long ago. Their failure was no surprise. But, Motorola? Motorola had invented themselves into new industry after new industry. They had moved from Good to Great. How could they slide from Great to Grasping?

While Collins will give you the complete data, let me summarize the stages:

Stage One: A lack of humility caused by refusing to count your blessings. This lack of gratitude makes the successful regard themselves more highly than the ought.

Stage Two: Discipline is the hedgehog concept from Good to Great. Being the best at what you do. Keeping the focus crystal clear. Lack of discipline increases the waist line and shrinks the bottom line. More is not better. Better is better.

Stage Three: Denial of Risk and Peril commonly appears as "This will never happen to us. We will never fail." Activity is mistaken for effectiveness. Cash flow is mistaken for profits. Size is correlated with greatness. Whether you study the Roman Empire or Motorola's Iridium, the might do, indeed, fall. Denial of this peril only accelerates the descent.

Stage Four: Grasping for Salvation - Who is the new renegade CEO who will charge in and save us? What is the new product that will catapult us back into success? Many of these external "saviors" have only turned into martyrs in the end. While Collins notes that it's not impossible to recover at this stage, the reality is that no industry possesses or ever will possess a silver bullet that will deliver them to success.

Stage Five: Irrelevance and death are the end result of prideful, undisciplined leadership. The only good news is that start ups will come along to capitalize on the opportunities that these Stage Five companies missed.

This book merits you and your organization conducting an Autopsy without Blame. How has your organization been blessed? What was skill and what was luck? How has your organization drifted from your core principles and mission? What are the key indicators that you need to monitor? What are the "prophets of doom" saying about your organization? Are you tempted to pursue something or someone new to turn things around?

If you catch things in time, you can still reengineer and turn things around. It's possible to return to great.

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